Freeserve takes on Customs in VAT dispute
Internet service provider Freeserve has told a high court judge that US rival AOL enjoyed a £100m VAT advantage, in its dispute with Customs & Excise.
Link: Customs faces VAT rebate crisis
The ISP, which is now owned by France Telecom, is suing Customs & Excise, claiming that tax commissioners made legal errors when they allowed AOL to continue to sell VAT-free services up until June 2002.
This situation has been addressed by an EU directive, which since June has put AOL on an equal footing with other European ISPs.
Before this directive, a company that supplied services to the UK from abroad did not have to account for VAT, unless it provided telecommunications services on which VAT is payable.
The question the judge must decide is whether VAT should have been levied on AOL packages, which are a mix of telecoms and information services.
Freeserve argument is that the situation changed in 2001 after the European Court of Justice gave guidance on the tests that should be applied in such a case, and that commissioners should have looked at the state of the law in existence at the time in making their ruling.
AccountancyAge.com contacted Customs who said it could not comment while the case was at trial, but would make a statement once the trial was concluded.